Receive the latest business updates in your inbox

The stock market began June with a strong rally thanks to another wave of benign economic data that overshadowed GM's bankruptcy.

But some investors are nervous that the month, traditionally a weak one for stocks, may not end as well.

Traders homed in Monday on better-than-expected readings on manufacturing, consumer spending and construction spending. The Dow Jones industrial average and other major indexes rose more than 2 percent, and the Standard & Poor's 500 index and Nasdaq composite rose to their highest levels this year.

The economic data suggested the economy's decline is moderating, but did not show a rebound. Construction spending rose in April, but personal spending was down slightly. Personal incomes were flat and U.S. manufacturing activity contracted for the 16th straight month in May, although at a slower pace.

Blame Them For Your Empty Wallet

Monday also brought General Motors Corp.'s bankruptcy filing, the fourth-largest in U.S. history. The filing didn't come as a shock, but it did serve as a reminder of the government's heavy involvement in corporate America following the takeovers of American International Group Inc. and the mortgage giants Freddie Mae and Freddie Mac.

Despite the appearance that stocks are resuming their climb on hopes for an economic turnaround, a number of analysts think the market has come too far, too fast since hitting 12-year lows in early March.

"I can't really buy into today's super-happy stock market," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. She said she was skeptical because even if the economy is stabilizing, there is little to drive demand once it bottoms.

Analysts pointed out that it wasn't just economic data that encouraged buying on Monday. Technical factors did, too. The first trading day of the month often brings with it a surge of new money from mutual funds, and meanwhile the S&P and Dow broke through their 200-day moving averages for the first time in well over a year. Moving averages are closely watched technical barometers for the market, and some traders will automatically buy or sell if those levels are breached.

According to preliminary calculations, the Dow rose 221.11, or 2.6 percent, to 8,721.44.

Dow Jones & Co. said it would add computer networking gear maker Cisco Systems Inc. to the index, replacing General Motors Corp., as GM entered bankruptcy protection. Seven years after being spun off by Citigroup Inc., Travelers Cos. will supplant its former parent on the Dow as well. The changes take effect June 8.

So far, this year's stock market has had an eerily similar pattern to last year's, noted Shaeffer's Investment Research analyst Todd Salamone, falling until mid-March and then gaining through May. Then in June of last year, the market started to sink. Salamone pointed out that the average return for the month of June during the past 20 years is negative 0.5 percent.

Standard & Poor's chief economist David Wyss said he expects the U.S. economy to bottom out late this summer or early in the fall, and then experience only a "rather sluggish" recovery. Wyss predicted U.S. gross domestic product — all of the goods and services produced in a country — to drop 3.1 percent this year, with even sharper declines in European economies and Japan.

Another hurdle that's approaching later this summer: Second-quarter corporate earnings results. If those come in worse than investors anticipated, Caughey said, "we'll have a reason to hate the market again."

Jack Ablin, chief investment officer at Harris Private Bank, noted that returns are much better when the S&P 500 is trading above its 200-day moving average, but that the statistic itself can send "a number of false signals."

Also, trading on the first day of the month is generally much stronger than normal. The S&P 500 index was down about 34 percent in the 10 years leading up to May 1. But according to S&P data, if someone invested in the index only on the first day of the month over that time frame, he would have gained 21 percent.

Government bonds fell again Monday, driving yields back near last week's highs. The yield on the 10-year Treasury note, used as a benchmark for home mortgages and other consumer loans, rose to 3.68 percent from 3.46 percent late Friday.

The dollar weakened further Monday against the euro and the British pound. Gold slipped, but oil jumped.

Advancing stocks outnumbered decliners by about 5 to 1 on the New York Stock Exchange, where volume came to 1.5 billion shares, similar to Friday.